View from Silicon Valley

Japan’s Evolving Role in California and in Asia

By Maxine Cheyney

As the booming technology industry expands, and Japan’s awareness and interest in Silicon Valley grows, Japanese companies are beginning to venture into partnerships and deals with innovative start-ups in California’s tech mecca.

On September 14, the American Chamber of Commerce in Japan (ACCJ) Alternative Investment Subcommittee hosted Toshi Otani, co-founder and managing director at venture capitalist firm TransLink Capital, to talk at Tokyo American Club about the ins and outs of investing in Silicon Valley companies.

Otani shared his 20 years of experience in Silicon Valley and provided an in-depth look at how the interactions between investors and start-ups occur, and how TransLink Capital serves as a partner in Asia.

VYING FOR THE VALLEY
The San Francisco Bay Area “is said to be this place for open innovation,” he began. “And open innovation, in many cases, means how do you use resources outside of your company to innovate the inside?”

A big part of this has to do with investment. “How do we use equity in a way that is meaningful and makes sense for your strategy, to move your strategy forward?”

Although Silicon Valley is best-known for high tech companies, he revealed that there has been an influx over the past three years of non-high-tech companies from a variety of industries.

“It really means that IT has become an integral part of business.” In particular, he named various car companies that have set up research and development facilities there, and Sompo Japan Nipponkoa Insurance Inc., which set up Sompo Digital Labs.

TransLink Capital’s process involves using a collaborative venture model, which focuses on creating partnerships that will eventually lead to acquisitions. “We take this technology and make introductions to the guys we know,” he explained. From there, discussions about investment can proceed if both sides are happy.

When asked if there are any companies that TransLink Capital would not work with, he said: “It is not just about the money for us because, as part of our model, we need feedback. We are looking for partners that, in the long run, will help us.

“We look for companies that are more capital-efficient. Capital efficiency is pretty important to us.”

An important point, for anything to happen, is that it is crucial to have strong buy-in from the top of companies.

BE CLEAR
One of the first mistakes that Japanese companies make when approaching Silicon Valley, Otani said, is going in without a “shopping list” and not clearly defining what they are looking for.

Also, Japanese companies tend to approach these discussions with indecision and an inability to give a definitive no, causing uncertainty and problems further down the line. This means that Japanese companies can easily lose out—especially if they focus on things such as capital and location. The important aspects, he said, are who the firm is, what they do, and what is important to them.

“If you think about dating, you want to make a good first impression; and unless you do that, the next step doesn’t come. You can always say no if you have a reason.

“In reality, it is more about how quickly you can move. Acting early does not come easy for Japanese corporations. But your ability to act quicker on a partnership or integrative technology is much more important than spending money and energy on getting an exclusive deal that a company does not want to sign.”

Another issue, he said, is that many large companies rely on reputation. But these companies must recognize that, as Japanese start-ups in Silicon Valley, they will not be as well-known.